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Guidance Issued on 100% Bonus Depreciation Rules

The
IRS issued guidance on how taxpayers can deduct 100% of the
cost of qualified business property placed in service in 2011
under rules enacted last year (Rev. Proc. 2011-26).

The Tax
Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010 (P.L. 111-312) allows taxpayers to deduct
100% of the cost of certain business property acquired after
September 8, 2010, and before January 1, 2012, and placed in
service before January 1, 2012 (or before January 1, 2013, in
the case of certain property). In addition, the act extended
the placed-in-service date for property to qualify for a 50%
additional first-year depreciation deduction to include
property placed in service before January 1, 2013 (or before
January 1, 2014, in the case of certain property).

The
revenue procedure spells out the requirements property must
meet to be eligible for 100% bonus depreciation, including the
acquisition date, the placed-in-service date, and the date
when original use of the property commences with the taxpayer.
Special requirements apply to self-constructed property.

The revenue procedure also specifies how the 100% bonus
depreciation rules coordinate with other Code sections,
including various tax credits, grants in lieu of energy
credits under Section 1603 of the American Recovery and
Reinvestment Act of 2009 (P.L. 111-5), and the Sec. 280F
limitations on passenger automobiles.

Taxpayers can
elect not to deduct additional first-year depreciation, and
the revenue procedure outlines the time and manner for making
that election.

The revenue procedure also allows
taxpayers to elect the 50% first-year bonus depreciation,
instead of the 100% bonus depreciation, for certain qualified
property placed in service in the taxpayer’s tax year that
includes September 9, 2010.

Some taxpayers with tax
years beginning in 2009 and ending in 2010 that filed their
2009 federal tax returns before the enactment of the Small
Business Jobs Act (P.L. 111-240) are uncertain how to claim or
not claim the 50% additional first-year depreciation for
qualified property placed in service after December 31, 2009,
in tax years ending in 2010. The revenue procedure provides
procedures for claiming (or not claiming) the 50% bonus
depreciation for this property.

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The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.

Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Tax Section membership will help you stay up to date and make your practice more efficient.